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The share market looks set to give back a little of this month’s bumper gains, snubbing positive leads from Wall Street as currency markets defy Reserve Bank measures to restrain the dollar.  

Australian futures dropped 14 points or 0.21 per cent, signalling an early retreat from yesterday’s 11-month closing high. The decline followed a push in the dollar back above 77 US cents, a headwind for local exporters.

US stocks rallied to fresh records. Oil hit a 12-month high. Iron ore, copper and precious metals rose.

Wall Street

US stocks extended their run of record closes amid a decline in Covid-19 numbers and optimism about a stimulus-fuelled economic recovery. The S&P 500 climbed 29 points or 0.74 per cent. The Dow Jones Industrial Average gained 238 points or 0.76 per cent. The Nasdaq Composite added 131 points or 0.95 per cent.

All three indices recorded intraday records as cyclical stocks outperformed. The S&P 500 and Dow rose for a sixth straight session. The Russell 2000 index of small caps, a traditional benchmark of risk appetite, climbed 2.36 per cent to an all-time high.

“Most investors are willing to take increased risk compared to normal,” Matt Hanna, portfolio manager at Summit Global Investments, told Reuters. “You have a confluence of events… nearly unlimited expectations for stimulus combined with companies actually doing fairly well and that’s fuelling major speculative behaviour.”

Expectations for economic recovery have intensified with the rollout of vaccination programs and a steady decline in infections. Case numbers in the US have tumbled by around two-thirds from 235,000 to 87,000. More than 32 million Americans have received vaccines.

Energy stocks spearheaded the advance as oil reached its highest level in more than a year. Brent crude settled $1.22 or 2.1 per cent ahead at US$60.56 a barrel, the global benchmark’s first finish above US$60 since the start of the pandemic.   

Airlines took off following reports President Joe Biden’s coronavirus relief plan contains a US$14 billion lifeline for the industry. The S&P 1500 airlines index jumped 4.5 per cent. Congress passed budget resolutions on Friday that could allow the Democrats to pass Biden’s U$1.9 trillion proposal without Republican support.  

Australian outlook

Pretty much everything except ASX futures rallied overnight: Wall Street, oil, iron ore, gold, silver, copper, the dollar. So why the weak futures number? The answer is most likely the inexorable rise of the currency.   

The Reserve Bank is trapped in an unofficial currency war with other central banks where each tries to lower their currency to give their exporters a competitive edge. But as a minnow among currency whales, the impact of each new RBA measure seems to be fleeting. The Aussie traded as low as 70.3 US cents in October amid talk of quantitative easing. Overnight, the dollar rallied 0.33 per cent to 77.04 US cents despite an announcement last week the RBA will extend its bond-buying programme for another 20 weeks. (The programme was originally due to end in mid-April.)

The problem for the RBA is the Aussie is seen on currency markets as a proxy for commodity prices. Prices up? Buy the Aussie. With the outlook for commodity demand on the improve, so is the dollar.

The share market moved closer to regaining its old highs yesterday. The All Ordinaries drew within 1 per cent of last year’s record close. The S&P/ASX 200 cracked 6900 for the first time since last February, closing 40 points or 0.59 per cent ahead. The ASX 200 has put on 273 points or 4.1 per cent so far this month.  

Energy stocks were the night’s best performer in the US by some distance, surging 4.2 per cent. Rising bond yields helped lift the financial sector 1.2 per cent, but also lowered bond proxies such as utilities and capped gains in health and real estate. The materials sector tacked on 0.8 per cent.

The half-yearly reporting season gathers momentum today. Among the bigger names providing updates are Suncorp, Dexus, Challenger, Boral and Shopping Centres Australasia. The session ahead also brings January business confidence figures.

Commodities

BHP and Rio Tinto rose in overseas trade as iron ore moved closer to US$160 a tonne. BHP’s US-listed stock advanced 2.76 per cent and its UK-listed stock 2.37 per cent. Rio Tinto gained 2.38 per cent in the US and 2.49 per cent in the UK. The spot price for iron ore landed in China rallied $3.90 or 2.5 per cent to US$159.80 a tonne.

Gold rose for a second  session in anticipation of the inflationary impact of a big US stimulus bill. Gold for April delivery settled $21.20 or 1.2 per cent higher at US$1,834.20 an ounce. The NYSE Arca Gold Bugs Index climbed 1.7 per cent.

Silver and copper also advanced. March silver put on 55.7 cents or 2.1 per cent at US$27.576. US copper rose four cents or 1.1 per cent to US$3.666 a pound.

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